memo to the city council about the property. - News

REPORT TO CITY COUNCIL
FROM:
Dorothy Ann David, City Manager
DATE:
July 19, 2013
SUBJECT:
PROPOSED DEMOLITION PLAN FOR THE FORMER GATEWAY
STUDIOS HOTEL SS 2013-036
A. Introduction: The purpose of this report is to provide information to City Council on the
status of property conditions and code enforcement relating to the former Gateway Studios Hotel
and also to obtain City Council direction on a proposed demolition plan for the building.
B. Recommended Action: Direct the Administration to continue with the proposed plan of
demolishing the building, including any additional input from City Council.
C. Prior Council Action: None.
D. Summary:
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Property conditions have declined precipitously at the site of the former Gateway Studios
Hotel, giving rise to an increased threat to public safety.
Staff has exhausted all efforts to gain compliance from the owner and has secured a Court
order to abate the public safety hazard through demolition.
Staff is proposing demolition of the building in a manner that facilitates future
redevelopment of the property.
Staff recommends use of the Urban Renewal Fund to pay for the demolition. The City’s goal
will be to recover the demolition expense from the future sale of the property, or an
alternative redevelopment plan which would be presented to the Council at a future date for
consideration.
E. Background:
1. Property Description. The site address of the former Gateway Studios Hotel is 1505 North
Neil Street. Its approximate location is at the southwest corner of the intersection of North Neil
Street and Interstate 74. Following is a profile of the building characteristics, use and occupancy
history and ownership status.
a. Building Characteristics. The hotel has five buildings with 208 guest rooms. Four of
the buildings are two-story, and one is three-story. The three-story building includes an
elevator. Walkways connect all five buildings with the guest rooms. A separate building
on the southeast corner of the facility features a kitchen, dining room, lounge, three
meeting rooms, a guest laundry room and a lobby. There are two maintenance rooms and
a housekeeping room on site. The atrium of the building has a swimming pool and spa
tub. Attachment A provides a detailed layout of the property.
b. Use and Occupancy History. The original use of the building was a Holiday Inn
developed in or around 1960. At no time during the life of the building has the use
classification as a hotel designed for temporary lodging changed. Even so, the former
Gateway Studios Hotel allowed guests to stay indefinitely as long as they could pay the
required rate. The building is now vacant and has been since May 12, 2009, when
Ameren disconnected the hotel owner’s electricity service for nonpayment and a four-day
evacuation of 52 families came to an end. The building was 25 percent occupied when
the emergency evacuation began. On May 13, 2009, the City condemned the building for
occupancy after the expiration of a 24-hour emergency notice. The building has not had
any utility services as of June 8, 2009.
c. Ownership Status. Donavan Acres, LLC, an Arizona Limited Liability Company, is the
current owner of the property. The hotel property is the only asset of the LLC. The sole
member of the LLC is the RF and PJ Seehausen Trust and the trustees are Richard and
Phyllis Seehausen. Phyllis inherited the property from her parents, Donald and Juanita
Gates, the owners of the property at the onset of the hotel’s use as a Holiday Inn.
According to the latest awareness of City staff, Richard Seehausen is deceased.
2. Property Conditions. After obtaining a search warrant, a team of Property Maintenance
inspectors conducted a comprehensive inspection of the building on June 10 and 11 of 2009 and
documented 401 code violations. Property conditions have deteriorated significantly since the
initial inspection three years ago, to the extent where the building conditions are irreversible and
pose a clear threat to public safety. Following is a summary of current building conditions and
recent photographs of the building conditions can be found in Attachment B.
a. Property Maintenance Neglect. Code Compliance inspections have documented the
building’s continued deterioration without any maintenance attempts from the ownership.
Concrete balconies and staircases are cracking and rust is evident on metal railings. The
roof has numerous leaks allowing water penetration into the interior of the building.
Pervasive moisture has caused visual mold growth on the interior walls. The swimming
pool in the atrium is partially filled with stagnant water and debris.
b. Unauthorized Entry and Vandalism. The building has been subject to continuous
intrusion and vandalism, resulting in graffiti, extensive broken glass and fixtures
throughout the building and scavenging of copper, iron and aluminum from electrical and
plumbing systems. Balcony handrails are missing which could cause a fall from an upper
floor. Intruders have removed walls, which makes securing the entire building difficult,
since one breached opening allows access to all parts of the interior of the building. City
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personnel can no longer secure the interior breaches of the building without a security
detail. One abatement contractor refuses to accept any more jobs to secure the structure
due to the perceived threat to safety while on the premises. Illegal dumping has become
a common practice in the rear parking area. The building has also been a place of refuge
for the homeless, evident from the arrangement of mattresses in various locations within
the building and personal belongings left behind. This is a serious concern, given their
vulnerability to the safety hazards and lack of security of the building.
c. Asbestos Contamination. The City is aware of the presence of asbestos in the building,
but it is unknown to what degree. Discussion with contractors suggests there is a large
quantity of asbestos in the building. An asbestos survey will be necessary to confirm the
level of asbestos in the building. A complete explanation of the asbestos survey process
and timeline is described in Section 5.b. below.
d. Impact on City Services. Neighborhood Code Compliance has performed a total of 38
nuisance abatement activities since 2009, for a cost of $13,782. The Police Department
performs random, directed patrols of the premise approximately 200 times per year. The
Fire Department has responded to reports of an active fire on two occasions in 2013. One
incident was in response to a mattress deliberately set on fire in the exterior courtyard,
and the second incident was a small fire in the interior atrium set by transients in an
attempt to keep warm.
e. Real Estate Tax Delinquency. There is a $221,861 tax delinquency associated with the
property for the following tax years: 2008 ($109,222.21); 2009 ($74,573.81); 2010
($22,029.21); and 2011 ($16,036.73). Tax sale certificates are outstanding for three of
the four years, excluding 2008. Three different entities are in possession of the tax sale
certificates, including Real Tax Developers (2009); Community Enrichment Group
(2010); and Comian XII Tax Lien Fund (2011).
3. Code Enforcement. The City filed a Complaint for Repair or Demolition of the hotel on
May 11, 2010 against Donovan Acres, LLC. The LLC does not have any resources other than
the Gateway property, and the LLC effectively shields the Seehausens from liability. The only
way the City could hold the Seehausens liable is to “pierce the corporate veil” of the LLC. This
means asking the Court to disregard the entity and look to the Seehausens for the monetary
means to demolish the hotel. Accomplishing this would not have been easy, and we do not know
the Seehausens’ personal assets. Nonetheless, the City filed a motion to add the Seehausens
personally as defendants, alleging the LLC and the Seehausens were one and the same.
The Court granted this motion and the City filed an Amended Complaint for Repair or
Demolition of the hotel on March 7, 2011. At the hearing on the City’s Amended Complaint, the
attorney for Donovan Acres, LLC asked the Court to continue the case generally because Vista
Securities, a tax purchaser, had petitioned for the tax deed. Vista Securities purchased the 2008
real estate taxes at an annual sale in 2010. The Court agreed with Donovan Acres, LLC that
there would be no point going forward if the tax deed was going to pass to Vista Securities.
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Vista Securities obtained the tax deed in November of 2011. Once a tax purchaser obtains the
deed, the purchaser must either (1) record it with the Champaign County Recorder within one
year to assume exclusive title to the property; (2) successfully petition the Court for a sale in
error and reimbursement of the investment in the taxes and relinquish the title to the original
owner; or (3) lose the tax investment altogether and relinquish the title to the original owner.
After Vista Securities obtained the deed, but before recording it, they approached City staff to
see if there was a way the City could help them demolish the hotel as part of a development
project. Initially, it appeared that they were serious about developing the property, but after
more discussions, it was apparent they were not. Vista Securities successfully petitioned for a
sale in error in November of 2012, returning sole ownership back to Donovan Acres, LLC.
4. Key Issues. The improbability of compelling owner abatement and the increased threat to
public safety are the prevailing issues concerning the former Gateway Studios Hotel. Fittingly,
an interdepartmental team of City staff have prepared and begun executing an action plan to
demolish the unsafe structure, subject to continuation based on City Council direction.
Following below is the status of the proposed demolition plan.
5. Demolition Plan. The action plan generally consists of obtaining a demolition order from
the court, hiring a contractor to demolish the property, demolishing the property in a manner that
facilitates redevelopment and a funding plan. Below is the status of each.
a. Seek a Court Order for Demolition. On May 9, 2013, the City filed a motion for
summary judgment. Prior to the hearing on that motion the City and Donovan Acres,
LLC agreed to an order of demolition and that order was entered.
b. Hire a Demolition Contractor. A Request for Proposals was advertised in the News
Gazette on June 26, 2013 and available for downloading on the City’s website. Staff
issued a Request for Proposals rather than a Request for Bids because the City does not
own the property and there is limited knowledge about the construction of the structure.
The Request for Proposals, as written, leaves the contractors uncertain about what is
actually there and how to price some of the unknown objects. Staff is recommending the
completion of an asbestos inspection to attain a more accurate cost estimate for
demolition. Contractors will be provided with the results of the asbestos inspection to
help them refine their proposals with a more precise cost estimate. A benefit for the City
to conduct its own asbestos inspection is that when the contract is awarded, the contractor
will actually be able to start the abatement and demolition process, rather than starting the
inspection process. This should save about a month of demolition time. If the City relied
on the demolition contractor to conduct their own asbestos inspection, it would not
provide any cost savings to the City and would delay the start of the actual demolition.
The proposed contractor selection schedule follows below.
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July 24, 2013 – Asbestos Inspection Starts
July 30, 2013 – Initial Demolition Proposals Due
August 23, 2013 – Asbestos Report Due (Provided to Contractors)
August 26-28, 2013 – Contractor Interviews
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September 6, 2013 – Contractor’s Revised Proposals Due
September 11, 2013 – Completion of Staff Review of Proposals
October 1, 2013 – City Council Action on Demolition Contract
October 17, 2013 – Notice to Proceed
c. Demolish the Property. The expected outcome of the demolition is a cleared site
without any environmental challenges; a crushed gravel surface to prevent vegetation
growth and minimize ongoing maintenance; and fencing to secure the site. The idea is to
demolish the property in manner that makes the site suitable for future redevelopment.
Staff has not included a time frame in this report for the actual demolition due to
unknowns concerning the level of asbestos abatement that will be required. Staff will
include a proposed timeframe for completion in the Report to Council that accompanies
the Resolution authorizing the contract for demolition.
d. Funding Plan. While preliminary, the anticipated expense range is $750,000 to $1.25
million. Staff recommends paying for this from the Urban Renewal Fund. There are two
reasons for this recommendation. First, Urban Renewal Fund was created to promote
neighborhood and economic development, which includes remediating blighted
conditions. Second, at present the Urban Renewal Fund has sufficient funds on hand.
Despite the current available Urban Renewal Fund balance, the City Council has adopted
plans that, if carried out, will fully commit the resources of the Urban Renewal Fund to
Bristol Park redevelopment and other purposes for the next ten years. These plans
include the adopted budget for this fiscal year, the Bristol Park Plan and the Capital
Improvements Plan. However, only a small portion of the cash on hand in the Urban
Renewal Fund is needed at present because most of it is dedicated to Bristol Park
relocation. Staff projects that the full amount of the funds on hand ($1.78 million) will
not be needed until approximately 18 months from now. For this reason, the cost of the
proposed Gateway demolition must be recovered to fully implement these other Council
priorities using the Urban Renewal Fund.
The method by which the City would cover the demolition cost in the long-term depends
on several factors. Following demolition the City will foreclose the lien and the land will
be sold at a Sheriff’s sale. An appraisal in June of 2010 indicates the estimated market
value of the land to be $1.2 million. At the sale, the City will start the bidding in the
amount of the City’s liens and costs. If another party bids over the City’s bid, the City
will receive the money and the revenue would be returned to the Urban Renewal Fund.
If there are no other bidders at the Sheriff’s sale, the City will obtain a Sheriff’s deed for
the land. The City could likely sell the property following a marketing effort typical for a
commercial property. Since the market value of the land exceeds the lower estimate
anticipated demolition cost by $450,000, staff anticipates that the City would recoup
demolition costs contingent on receipt of proposals from demolition companies.
Alternatively, the City might wish to guide how the site is developed in light of the
prominent location of the Gateway property. If that is the course that Council would
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prefer, the City could develop an RFP process for the sale and redevelopment of the site.
In such circumstances prospective purchasers might seek City incentives and/or a lower
purchase price to facilitate development of the site. In that event it is possible that the
City might not fully recoup its demolition costs, or at least not in the near future. Council
input on the future use of the property is not being requested at this time. If the City
proceeds with demolition and secures a deed to the property, a future City Council study
session will be scheduled to discuss the best strategy to promote the positive reuse of the
site and recover the City’s costs.
In the event that the City has not recouped its full costs by the time the resources of the
Urban Renewal Fund are required for Bristol Park redevelopment and adopted plans,
Council could consider alternative financing methods such as internal (inter-fund)
borrowing, issuing debt, and/or reallocating resources from other City funds or within the
Urban Renewal Fund.
F. Alternatives:
1. Direct staff to continue with the proposed action plan of demolishing the former Gateway
Studios Hotel, including any additional input from City Council.
2. Provide staff direction to consider a different strategy to address the public safety concerns
posed by the former Gateway Studios Hotel.
G. Discussion of Alternatives:
Alternative 1 would direct staff to continue with the proposed action plan of demolishing the
former Gateway Studios Hotel, including any additional input from City Council.
a. Advantages
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Would eliminate a serious public safety hazard as quickly as possible and reduce the
likelihood of harm to citizens and City personnel.
Would eliminate a blighted property from a primary entryway to the City.
Could stimulate redevelopment of the property and others in a visible corridor of the
City.
Redevelopment of the property would restore its contribution to the City’s tax base.
b. Disadvantages
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Funding for the demolition would be temporarily diverted from another use.
Cost recovery will be slow and the City might recover less than the expense.
If the full cost of the demolition is not recovered, the City would likely have to
implement alterative funding strategies for the Bristol Park redevelopment.
Alternative 2 would provide staff direction to consider a different strategy for the former
Gateway Studios Hotel.
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a. Advantages
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Council could provide direction for an alternative that improves or replaces the current
recommendation that would result in a more efficient resolution of the problem.
b. Disadvantages
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Could possibly delay momentum toward resolving this longstanding public safety issue.
As the building rapidly continues its downward spiral, further delay could increase the
risk of harm to citizens or City personnel.
H. Community Input: There has not been any community input on this issue, outside of
intermittent citizen complaints about the condition of the building and concern for public safety.
The public will have an opportunity to comment on the demolition plan at the July 23 Study
Session.
I. Budget Impact: A funding plan is included in the proposed demolition plan discussed
above. Staff does not recommend revising the annual budget at this time given the uncertainties
of whether the City would recover its costs at Sheriff’s Sale or obtain a deed to the property.
Should it become likely that the City might not recoup demolition and related costs by the end of
this fiscal year, staff will develop alternative funding strategies for Council consideration. Once
Council has approved a strategy, staff would prepare a budget amendment to reflect Council
direction.
J. Staffing Impact: Staff from Neighborhood Services and Legal has spent numerous hours on
the code enforcement and related legal actions related to this property over the past several years.
The deteriorating condition of this property has also required increasing response by Police and
Fire personnel. Staff anticipates at least a combined 120 hour commitment from a Neighborhood
Services Community Development Specialist and a Public Works Assistant City Engineer as coproject managers for the demolition process. The Assistant City Attorney expects to commit 12
hours. This project will have some impact on Administrative staff from the City Manager’s
Office, Neighborhood Services, Public Works, Police and Planning.
Prepared by:
Reviewed by:
Kevin J. Jackson
Neighborhood Services Director
Richard Schnuer
Finance Director
Attachment A: Gateway Studios Site Layout
Attachment B: Gateway Studios Building Condition Photographs
J:\NSD\ADM\Gateway 2013\RTC Gateway Study Session.docx
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Attachment A
Attachment B
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Example of breached entry point
Courtyard view of 3 story wing
Stair tower between 2 story and 3 story wings
3 story wing facade facing North Neil Street
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Interior courtyard view of 2 story wing (north)
Interior courtyard view of 2 story wing (south)
Breached entry point after securing
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Broken stair tread
Deterioration on balcony walkway
Roof structure over balcony walkway
Deterioration of balcony walkway
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Interior room example
Copper theft. Wall penetration behind bathtub
Interior room activity
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Overview of atrium interior including pool
Atrium interior
Aluminum theft. Missing balcony railings
Swimming pool
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Fire incident #1 in parking lot
Mattress remnant from fire incident #1
Fire incident #2 in atrium area
Debris removed from building from fire incident #2
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